7/29/2009 @ 6:00PM

Just How Good Are You?

Slackers be gone! Lars Dalgaard wants to bring meritocracy to corporations everywhere. The $124 million (sales) software firm he runs, SuccessFactors, tracks employee performance against measurable goals, from a store clerk to a chief executive. He says this saves the human resource types from being “weenies” and prevents the kiss-up types from getting ahead. Now Dalgaard aims to create something about people’s goals–and what contributes to success–based on the insights collected by his software. He spoke to Forbes editor Victoria Barret.

Forbes: Tell us a little bit about the evolution that you see your customers go through as they roll out SuccessFactors’ software.

Lars Dalgaard: The human resources people don’t want to be weenies. We help them quantify who the true performers are and who are not. Everybody’s always wanted to know that. There was just no software technology to do it. Today there’s one [software platform] that has 5 million users, paying users, quantifying all performance in the organization. Separate the losers from the winners–that’s what we do at SuccessFactors.

It can change an entire organization in the sense that often a promotion can depend on who your boss is, right?

That’s exactly right.

There are a lot of inconsistencies.

You win the lottery.

And from a company’s perspective, it doesn’t really know, five rungs down, how people are performing. With SuccessFactors, do they truly get that visibility?

Absolutely. They do not have this visibility, and that’s one of the things I realized when I was at Unilever running a 10,000-people division. At every board meeting we had, they had no clue what was going on in the periphery of the organization.

Now they can get that visibility right in front of their face. That’s what companies like Kimberly-Clark and others have been able to do with our software. Globally, they see all of their managers and all their employees, and keep diving down into the organization and see what everybody’s working on. It’s a little bit Orwellian, but it’s good for the employees because they now get paid if they do something. If you don’t do something, sorry, you don’t get paid.

SuccessFactors is growing and spending. I imagine you’re rolling out new data centers.

Yes.

What kind of decisions are you making, and how much leverage do you have over technology vendors in an environment like this?

We’re definitely the-software-as-a-service platform that is the cheapest and most affordable. That’s because we’ve architected our platform so that we can host more users than anybody else can.

We have 5 million users, which nobody else has. We have one customer with 300,000 users on it.

Our technology allows us to practically have no capital-expenditure increase every single quarter. That’s what we’re investing in aggressively, at a very affordable rate.

How have you managed to do that? Where do you find the efficiencies?

It’s the way the product is architected. Basically, we are multitenancy. Other companies talk about it, but they don’t do it. And so we have a phenomenal utility of each server. There’s never a server that’s idle.

One of the buzzwords in technology right now is cloud computing. There are private clouds, public clouds Everyone’s going to have their own cloud, it’ll be all wonderful.

Yes.

What’s your advice, given that you guys have kind of been doing this for several years now? What are the pitfalls to avoid?

You see SAP failing at this. You see Oracle failing at this. It’s because it is a completely different way of running your business. We had real problems, originally, when large banks would tell us, ‘No, put our data behind the firewall, and we’ll give you a $5 million deal.’ We’d respond, ‘That’s not our business. We really want your business. Let us show you how this can be better than anything you ever had before. It won’t break down. It’ll be extremely robust, and you’ll get immediate efficiency.’ That’s what we can do that other companies aren’t doing today.

Typically your software is installed for every employee in a company, so you have tremendous insight into the employee base, and how he or she is doing. How do you use that data now, and where can you take this?

When you have 5 million users, which is as big as my country, Denmark, you’re getting a lot of data. The more interesting thing is that it’s in many different verticals and six different industries.

We can actually see how a chief financial officer in retail compares with another chief financial officer in retail. Or what a chief executive in banking does compared with another in banking. Or we can compare them with somebody lower in an investment bank, or with somebody in a retail outlet.

That’s what’s different about this data. We can do that without revealing the individual company data, but actually just looking at it generically, to see how much a performance difference there may be in one company compared with another, and going to see why that is. What is it that they do different?

Can you do apples-to-apples comparisons? Or is one bank versus another bank different in that they have completely customized ways of measuring performance?

There are some things you have to normalize. But they’ll all be doing some things in common. These companies are definitely interested in knowing, without revealing their own specific data.

There are some privacy issues, clearly.

You can get around that in a comfortable way for everybody. Security and safety of data is absolute paramount for us. But beyond that, when you just make the data generic, you can look specifically at areas of improvement, or lack thereof, and make sure that you track the performers and the underperformers.

So this is benchmarking.

That’s absolutely what it is.

How much of that are you doing now, currently?

We’re doing a lot of it. It’s a lot of research. We’re working for some of the major business schools, like Stanford’s and others, and looking at diving in much deeper into this data.

In a way, you could take on the role of consulting firms like Bain or Mckinsey, right?

We’ve been talking to both of those companies about doing those things, and they’re quite interested.

Looking at the software as a service space, there are a lot of small, vertical vendors. Do you see consolidation happening? What does this industry look like in five years?

There is always a graveyard of zombies that shouldn’t be around. They were not ever built with any purpose, and they will continue to consolidate. I think a bad company for sale is not an interesting opportunity, even if it’s a cheap opportunity. But they will consolidate. I think strong companies that are built with a mission and have a real purpose will stay their own way. And you’ve seen a bunch of the companies that have gone public that have continued on that path.

So I think you’ll see a lot of insignificant players get gobbled up. Most of the competitors that were bigger than our company when we took it public are now smaller than us, despite all the acquisitions they’ve done.

We haven’t done a single acquisition. We’ve just grown organically to be the size that we are, which is bigger than most.

From a customer’s point of view, you’ve got to shop around to build a full software suite. Is that a hindrance for the industry?

With the way our applications are built in the cloud, you can actually connect them very easily. And it’s just not an obstacle at all. I mean, they’re finding things that they never were able to do before, from an integrated vendor, that they can do today in the cloud.

So is Web software is unique in the sense that consolidation wouldn’t necessarily yield huge benefits?

Yes, and now Larry Ellison has woken up, and SAP is trying to wake up. A lot of these companies are realizing, “Oh, my god, this train is leaving the station. We’re ten years late. We’ve got to get on it.”

But we have a really serious lead now. It’s going to be a little bit hard to catch up to that.